Brazil organises investor meetings for state asset sales

Business Monday 23/May/2016 14:44 PM
By: Times News Service
Brazil organises investor meetings for state asset sales

Brasilia: The Brazilian government plans to host a round of investor meetings to market a broad plan of asset sales, a key initiative to help raise cash and reduce a record budget deficit, a senior official and people familiar with the matter told Reuters.
According to Wellington Moreira Franco, the head of a government agency to draw foreign investment to Brazil, a round of so-called roadshows is seen as a necessary step to advertise the assets and the legal and regulatory framework behind the program. He did not give a timetable nor say which assets will be sold.
Still, five sources with knowledge of the plan told Reuters over the past week that Moreira Franco and Foreign Affairs Minister José Serra will lead the roadshows, which may take place in New York, London and other financial hubs. Two of the sources said the presentations are scheduled for mid-July.
The list of ready-for-sale assets is still in the making. Yet, interim President Michel Temer's government wants to sell majority stakes in the fuel distribution unit of oil producer Petróleo Brasileiro SA and in power utility Furnas Centrais Elétricas SA, and some of the facilities that airport authority Infraero runs, the sources said.
Moreira Franco said the programme's goal is to help create jobs as Brazil wrestles with a two-year long recession and slumping commodity prices. Still, the plan could help Brazil raise extra funds to narrow a deficit that most economists forecast to top 10 per cent of gross domestic product this year.
"It's time to end with the government monologue and start building solutions with our partners," Moreira Franco said late on Friday, adding that the legal and investment framework will be designed in a way that bidders "feel safe and confident."
The state asset sale program offers more evidence of Brazil's policy shift since the Senate's decision earlier this month to try the impeachment of leftist President Dilma Rousseff. Temer, her replacement during the trial and afterwards if she is found guilty, has vowed to streamline Brazil's bloated state and open room for more private investment activity.
It could become Brazil's most ambitious privatization drive in two decades.
Qatar Investment Authority, Abu Dhabi Investment Co PJSC, and Mubadala Development Co PJSC are among the sovereign wealth funds invited to attend the roadshows, three of the sources said. Canadian investment firms and European infrastructure companies have already been contacted too, the same sources added.
Moreira Franco declined to give an estimate of how much the government could fetch from asset sales, although two of the sources said proceeds could range between $10 billion and $20 billion over the next two years.
Some of the largest investment banks operating in Brazil will also attend the meetings, many of them representing potential buyers, the sources added.
In a statement to Reuters, Temer's office said the government "plans to transfer to private investors several assets, stakes and companies, although it is still analyzing which and which others will remain in the hands of the state."
Spokespeople for Serra's office declined to comment. Spokespeople for the wealth funds and the Canadian firms including Brookfield Asset Management Inc, did not have an immediate comment.
Sanitation, insurance, lottery
Temer plans to deliver to lawmakers later on Monday a request to raise a key budget deficit target for this year, which requires congressional approval before the end of the month to avoid a government shutdown. The new shortfall estimate is the so-called primary deficit goal, or the expected difference between spending and revenues before debt payments.
Brazilian equities, bonds and currency have gained in recent months, on optimism that an eventual removal of Rousseff from office for breaking budgetary rules could usher in more business-friendly policies.
Moreira Franco noted that the asset sale program and contacts with investors could also help the government resume auctions of oil and natural gas exploration permits.
The programme will be implemented in phases that will hinge on the ability of officials and their advisors to prepare deals, the sources noted. Moreira Franco said that no banks have yet been hired to advise on the program.
According to the sources, the government will first offer those state companies with the most attractive or profitable business models, keeping a smaller stake in them. At a later stage, the government would try to exit stakes in privately-held or listed companies owned by BNDESPar, an investment holding company controlled by state development bank BNDES, they said.
The Temer administration is considering disposing of stakes in regional sanitation firms, helping them refinance debt they owe to the federal government, one of the sources said. Other assets include state lender Caixa Econômica Federal's insurance unit and lottery licensing, the same source said.
Between 1995 and 2002, then-President Fernando Henrique Cardoso embarked on the sale of mining firms, utilities banks and licenses to operate telecommunications and electricity networks that raised about $78 billion.
Cardoso sold 10 companies as well as five road and seven railway concessions, more than any other president in the country's history.
Brazil's federal government has 2 trillion reais ($568 billion) in direct or indirect stakes in about 77 companies, according to data compiled by Economática and Thomson Reuters. Among federal agencies that invest in state-controlled as well as private-sector companies is BNDESPar, which manages 45 billion reais in equity holdings.